EU China trade dialogue: business wants to move on to next issues

Handshake between Zhong Shan, China’s minister of commerce, on the left, and EU trade commissioner Cecilia Malmström – October 2018

China-based European companies are grappling with a new generation of challenges as the country’s economy becomes more prosperous. But Brussels and Beijing are struggling to resolve long-standing trade and investment issues and move on to a new phase of economic dialogue.

The EU and China have been negotiating a Comprehensive Agreement on Investment since 2013. The proposed deal would help resolve market access issues, establish a framework for investment protection and set basic labour and environmental standards. Although the talks gained momentum last July, when the two sides tabled market access offers, there is a sense that discussions have stalled again.

Beijing’s mind is focused on calming down trade tensions with Washington. The EU too is dispensing a lot of political energy on keeping transatlantic relations afloat.

In the short term, US-China trade tensions are benefiting European countries. Last month the Geneva-based trade body UNCTAD found that the EU was a major beneficiary of the diversion of trade triggered by US tariffs imposed on US $ 250 billion worth of Chinese products last year – and the resulting retaliatory tariffs – introduced by Beijing. Autos, machinery, chemicals and the food sectors, which all are European specialties, are the biggest ‘winners’ from the trade war.

Balancing act

Mats Harborn, President of the European Union Chamber of Commerce in China

But that doesn’t mean that the President of the European Union Chamber of Commerce Mats Harborn believes the China-US trade tensions are in any way positive. Any further escalation could have a negative macroeconomic impact hurt European businesses as a consequence.

The US is trying to get China to commit to some structural economic reforms through bilateral negotiations and is using the tariffs as ‘leverage’ to bring Beijing to the table. These structural problems include market access barriers, a dearth of licences for international firms, differentiated treatment and sectors crowded out by monopolistic state-owned enterprises and intellectual property matters.

The European chamber shares US frustrations. “These issues should be dealt with in the World Trade Organization,” reckons Harborn. For the EU, the question is how far to take the confrontation with China. “It’s a balancing act. We need to work on issues of concern with China, while not coming to a damaging conflict.”

Harborn is concerned by the lack of tangible progress in the bilateral EU-China investment talks, especially given the current context of international trade tensions. “Both sides need to understand that this has to come to breakthrough,” Harborn said.

For European businesses, making progress on the investment deal with China is also about moving on to the next conversation with the Chinese state. “On intellectual property and on market access we see willingness from China to move forward.” Now it is about delivering.

New challenges

European businesses are facing a new set of challenges on the Chinese market. China is becoming a more sophisticated, consumer-based economy requiring elaborate administrative capacity in setting the right technical and environmental standards. In practice, EU businesses are faced with complex and contradictory decisions by the Chinese administration.

“Concerns like lengthy administrative procedures, nontransparent procurement systems, unpredictable enforcement of regulations and issues arising from poor inter-governmental coordination all inhibit smooth business operations, reduce opportunities for European investors and chip away at confidence in the Chinese market,” reads the latest EUCCC position paper.

Harborn explains that the Chinese authorities sometimes want a technical standard to fulfil several goals at the same time – making it difficult for businesses to implement them. Harborn says the EU needs to engage with China more systematically in standard-setting and regulatory issues related to today’s most pressing topics: environmental sustainability, energy, climate change, digital and healthcare.

China is becoming increasingly engaged in international standard-setting bodies. In other areas such as next-generation internet – 5G – China is trying to lead with its own standards on the world stage. “We need to embrace and engage with the process”, Harborn says.

Business doesn’t always wait for the authorities to move – it can take matters in hand. Mid-February the European Automobile Manufacturers’ Association and the Chinese Association of Automobile Manufacturers signed a cooperation agreement to tackle standards and regulations in low-CO2 emission standards an electric vehicles. “This is an example of how to strengthen the regulatory dialogue using industrial associations,” reckons Harborn.

2019 will reveal if China and the EU are able to move to a new phase in their trade and investment conversation.